Nonmanufacturing Stumbles Anew - September 3, 2010

A key report from the services sector was issued earlier today, in which the Institute for Supply Management reported that nonmanufacturing activity had increased in August, but at a lesser rate than in July. The improvement also was at a slightly more subdued pace than had been expected in the latest month.

Specifically, this data showed an increase in activity last month to a level of 51.5, which was less than in July (54.3) and less than forecast (53.5). Note than a level above 50.0 signals that this sector is experiencing growth, while one below 50.0 suggests that there has been some contraction in activity. A level below 44.0 is consistent with service-sector conditions one would expect to find during a recession. We had been decisively in a recessionary mode during much of 2009, when the overall economy was in decline, as well.

The aggregate rate of improvement last month was also consistent with some of the individual components in the report, which featured an outright decline in employment, with that component falling to 48.2 last month from 50.9 in July. New orders slowed, but showed growth, coming in at 52.4; the prior month had totaled 56.2. One area that did show a marked acceleration was prices paid, surging to 60.3 in August from 52.7 in July.

This report was a further reminder that the economy has noticeably slowed its rate of growth in recent months. The past few days, by comparison, had seen somewhat better-than-expected results issued by the companion manufacturing survey that was also put out by the Institute for Supply Management. Also, this morning, the government issued data showing a lesser rate of employment decline than had been expected. Such slight improvement, which has helped the stock market regain some ground in the new month, has been the atypical, however. The nonmanufacturing survey, which is highlighted here, seems more consistent with the overall direction of things in the economy.